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If you bought life insurance before 2003, 2 things are guaranteed: Your death benefit and the fact that you paid too much. That’s right, there have been fierce no-holds barred life insurance pricing wars going on between the insurance companies where term life rates have come down almost 60%. If you haven’t done so lately, it is time for a life insurance check up.
Is your Life Insurance up-to-date?
Life insurance is one product you don’t want to purchase and forget about. Like any financial product, life insurance needs to be reviewed every once in a while to make sure it still fits your goals.
Is your beneficiary page up-to-date?
Did you get divorced or re-married? Is your ex-wife still your beneficiary? Did you have a child? Are your children all named as beneficiaries? As you can see, there are several reasons why you should give your life insurance policy a check up
Are you paying too much for your life insurance?
You could be. If you have an older policy, pre-2005 you’re paying more than you have to. Life insurance rates have come down over the last 10 years and your insurance company or agent is not going to tell you.
Think life insurance isn’t affordable?
You might be surprised. Let’s say you just want term life insurance: Basic life insurance without the ability to accumulate cash value (more on this in a minute). You will pay relatively less for it. Premiums for standard term insurance have gotten smaller and smaller from the mid-1990’s through the late 2000’s.
Only recently have term rates started to increase as a consequence of higher capital and reinsurance costs (which are byproducts of tighter credit markets), but they are still lower than older term life policies.
It can’t hurt to double-check your life insurance, to be certain you are using it wisely and that your coverage is adequate. If you are still healthy, there is a good chance you can reduce your life insurance rates with a new policy. And we all like to save money don’t we?
30% of Americans have no life insurance whatsoever?
This statistic comes from a 2010 study from LIMRA (a worldwide association of insurance and financial services company), which also reveals this troubling fact: Fewer Americans own individual life insurance policies than at any time in the last 50 years. If you’re not insured, you’re not alone.
Did you cancel your life insurance coverage due to touch financial times?
Are you waiting for better financial times? The non-profit Life and Health Insurance Foundation for Education (LIFE) found, via a recent poll, that 27% of Americans would be willing to cancel their life insurance coverage to save money in hard times. But if the unthinkable happens, a lack of insurance could make even the toughest times more difficult for loved ones.
Types of Life Insurance Policies
Term Life Insurance:
Term life is for a specific period of time. The older you are when you buy a policy, the higher the premium. But now premiums may be fixed for as long as 30 years. You can purchase a 5, 10, 15, 20,25 and 30 year term policy. The most common term is 20 year level, which means your policy and premium are guaranteed for 20 years. There is no savings component with term life and when the term is over, your insurance coverage ends. You can cancel your policy at anytime. The death benefit is income tax free to your beneficiaries.
Cash Value Life Insurance (Whole Life)
Whole life insurance builds cash value and provides a death benefit. The policy stays in force for your lifetime as long as you pay the premiums – which are invested by the insurance company.
The average annual return on whole life policies has been about 5% over the last 20 years so this makes whole life a very good value and has outperformed many other investments over the same time period. Your cash value grows tax-free and the death benefit is exempt from income tax.
Because you can borrow against its cash value, the policy provides a savings cushion in turbulent times. Once you buy whole life you never have to renew the policy or take another physical exam as you age.
Guaranteed Universal Life (GUL)
Guaranteed universal life combines low cost term insurance and a savings component (cash value). The cash value grows tax deferred and earns returns greater than money market rates. The cash value is invested in short term investments and the average return is about 3%.
Many polices have minimum guaranteed interest rates which cannot fall below at least 3% even in this low interest rate environment. Beware: Many insurance companies have lobbied their state insurance department to allow them to lower the guaranteed interest rate to 1% on new policies and they have won. Look for policies with a minimum guarantee of at least 3%. They are still out there.
The internal cost of a universal life policy increases each year as you get older which could force you to pay a higher premium as you get older. Many of these policies were sold with the insured paying only the minimum premium.
If you have a life insurance policy and just stuck it in the drawer and forgot about it. It could be time for a check up.
